CASUAL Post Office workers stole cheques payable to the Inland Revenue

worth #7m and cashed them in a series of accounts opened under bizarre

names, according to a report out yesterday.

Spending watchdog the National Audit Office said the payee name on the

cheques was altered and cashed in names such as Inlandi Revendi.

The ''highly organised fraud'' involved cheques worth a total of

#7.68m and was first spotted in 1989. By 1990, the operation had grown

to such proportions that 20 cheques a week were being fraudulently

cashed.

About #5.88m was stopped within the banking system, leaving #1.8m

unaccounted for.

In one case, a building society accepted an altered cheque worth

#175,000.

In its review of the accounts of Customs and Excise and the Inland

Revenue, the NAO also said checks on 1.7 million traders for VAT

purposes uncovered underpayments of #1.1 billion in 1990.

In another fraud operation -- linked to the theft of the #7m of

cheques -- cheques known as payable orders with a value of just over #1m

were stolen. These were sent out by the Inland Revenue to repay tax to

taxpayers between 1989 and 1991.

The report said Inland Revenue computerised clearing checks were

largely successful in stopping forged and fraudulently increased payable

orders.

Up to August 1991, three orders with a face value of #875,215 were

stopped by routine checks without loss.

A number of arrests were made in both areas, and the Post Office has

tightened up its recruitment checks, but taxpayers were still being

asked to write cheques in a way that made fraud more difficult, the

report said.

Since the Inland Revenue started investigating, the number of

fraudulent encashments of incoming cheques has dropped dramatically, to

just two a week in July 1991, it added.

On VAT, the report said arrears were up on 1989 by just under 4% to

#977m, an increase blamed largely on problems faced by traders with high

interest rates and the recession.